Gov't won't see a shekel from Tnuva sale

Prof. Hadari: Exceptions could have been made to the exemption for foreign investors.

"The fact that the government will not see a single shekel from the Bright Food-Tnuva Food Industries Ltd. deal is not an edict from God. The finance minister could have set terms for exceptions to the law that gives foreign investors a tax exemption on the purchase of shares in Israel, and it is regrettable that he did not do so. Apax Partners is a lost cause, but he still has the opportunity to correct this matter in the future, so that the Chinese will pay taxes when they sell Tnuva," Prof. Yitzhak Hadari, an expert on international taxes, told "Globes".

Article 97 of the Income Tax Code states that a foreign resident who buys shares in Israel is exempt from taxes (subject to certain exceptions). Apax is eligible for this exemption on the sale of a company, which infuriates Hadari. "The finance minister has the authority to set all kinds of exceptions to the tax exemption, but he does no use this authority," he says.

Hadari believes that the tax exemption should be cancelled, because it is unjust and wrong for the country, which loses a fortune. "There is no justification for this exemption. Apax made a fast buck, a handsome profit, which is fine - but it should pay taxes in Israel or in the treaty country, if it comes from a treaty country. But my guess is that it is listed in a tax haven somewhere in the world, so it pays no taxes anywhere on its huge profits," he says.

"In my opinion, the usual 25% capital gains tax should apply on transactions of this kind. The exemption has no justification. A tax exemption is only justified on investment in Israel, in other words, when an investor leaves something in Israel. For example, when Intel increases jobs, contributes to suppliers and technology, and so forth, and the economy profits, then it should receive tax exemptions. But someone who only buys shares to make a quick profit does not have to invest in an Israeli company during the period he owns it, but only enjoys profits - does not deserve an exemption," says Harari. This exemption should be wiped off the books. It's an exemption with no cap, no contribution to the economy. What has Apax Partners contributed to the economy? What will the Chinese contribute?"

Published by Globes [online], Israel business news - www.globes-online.com - on May 22, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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